Ok let's understand how our SEXY VJC student determined the maximum value of Cambridge. Any amount paid more for Cambrige, you are likely to lose money. ( based on Discounted Cash Flow analysis, excludes Market Irrationality).
Based on Colliers International data above, it is logical to assume that the rental income growth rate g of industrial properties is 0%, by looking from 2001 to 2006F. ( just a cursory glance, she did not do a regression line. Keep it simple. It looks negative actually but let's be nice.).
Based on the above from SGX, the average dividends, D, of Cambridge Industrial Trust for 2007 and 2008 is $0.0616.Let's use DBS preferential shares of 6% as our required rate of return, K.
Now, let's look at the average number of years that the assets of Cambridge Industrial Trust have to their expiry as all of them are leasehold except for Lam Soon Industrial which is Freehold. (We will assign 999 years to this freehold property. This is just a judgement call.)
From above, the average number of years left to expiry is 65 years. Therefore, the formula we will use is :
Using Excel spreadsheet and plugging in the values, the Fair Value (V) for a Cambridge Industrial Trust share is $ 1.00341. Thats the maximum amount one should pay and it assumes that Cambridge is able to sustain the average occupancy of its premises currently. It also assumes that the rentals do not drop and stays constant. It also assumes no exceptional things like volcanic eruptions or earthquake or fire or Tsunami or Terrorist attack happens on any of its site. So the market price currently as of close 28 Nov 2008 is $0.205. Is it enough for you?
Analysis done by The SEXY VJC GIRL (Aspiring Future Venture Capitalist- who wants to hire her as an intern?)Important: The objective of the articles in this blog is to set you thinking about the company before you invest your hard-earned money. Do not invest solely based on this article. Unlike House or Instituitional Analysts who have to maintain relations with corporations due to investment banking relations, generating commissions,e.t.c, SGDividends say things as it is, factually. Unlike Analyst who have to be "uptight" and "cheem", we make it simplified and cheapskate. -The Vigilante Investor, SGDividends Team